It's a close call on a RBA rate hike for next week

<p>The latest poll by Reuters shows that 20 of 36 economists are expecting the RBA to announce a 25 bps rate hike to 4.35% next week. If so, that will represent the highest cash rate in nearly 12 years. For me, that's still quite a split decision as the other 16 economists (45%) are voting for no change to the cash rate.</p><p>Meanwhile, among Australia's "big four" banks – whose views tend to hold more weight – there is a split in the call as well. <a href="https://www.forexlive.com/centralbank/commonwealth-bank-expect-the-reserve-bank-of-australia-to-hike-cash-rate-by-25bp-next-week-20230728/" target="_blank" rel="follow">CBA</a> and <a href="https://www.forexlive.com/centralbank/westpac-expects-the-reserve-bank-of-australia-to-hike-cash-rate-by-25-bp-next-week-20230728/" target="_blank" rel="follow">Westpac</a> are both still expecting a 25 bps rate hike while ANZ and <a href="https://www.forexlive.com/news/nab-now-sees-no-rba-rate-hike-in-august-20230726/" target="_blank" rel="follow">NAB</a> are anticipating a pause.</p><p>But what is more important perhaps, is what has been priced in by markets?</p><p>Despite the balance of the call above being slightly favoured to a 25 bps rate hike, the OIS market is showing odds of that being only at roughly 23%. That means that traders are pricing in a roughly 77% probability that there will be no change to the cash rate on Tuesday.</p><p>And therein lies the risks to any reaction in the Australian dollar. That being that if the RBA does deliver "as expected" with a 25 bps rate hike, there is going to be a stronger reaction higher for the currency than it would if the central bank opts for a pause instead.</p>

This article was written by Justin Low at www.forexlive.com.